Youare examining the performance of two mutual funds. AD VALUE Fund hasbeen in e

Youare examining the performance of two mutual funds.
AD VALUE Fund hasbeen
in existencesinceJanuary11988andinvestsprimarilyinlowPriceEarningsRatiostockswithhigh
dividendyields.ADGROWTHFundhasalsobeeninexistencesinceJanuary11988butitinvests
primarilyinhighgrowthstockswithhighPEratiosandlowornodividends.Theperformanceof
thesefundsoverthelastfiveyearsissummarizedbelow:Averagefrom1988-1992Price AppreciationDividend YieldBetaNYSEComposite13%3%ADVALUE11%5%ADGROWTH15%1%The
average riskfree rate during the period was 6%. The current riskfree rate is
3%.a.
How well or badly did these funds perform after adjusting for risk?b.
Assume that the front-end load on each of these funds is 5% (i.e. if you put
$1000 in each of these funds today you would only be investing $950 after the
initial commission). Assume also that the excess returns you have calculated in
part (a) will continue into the future and that you choose to invest in the
fund that outperformed the market. How many years would you have to hold this
fund to break even?